Suriname does not allow oil companies to charge interest on investments

Oct 24, 2023 ExxonMobil, News, Oil & Gas

…But Guyana permits recovery for uncapped and unknown interest rates on Exxon projects

Kaieteur News – As Suriname gears for the development of its first deepwater oil project with French multinational, Total S.A, the Dutch-speaking nation has made it explicitly clear that there are several costs which Total or any oil company for that matter, are forbidden from recovering. Interest on loans is one such expense.

Where Guyana is concerned, the situation is quite different. The 2016 Production Sharing Agreement for the Stabroek Block allows ExxonMobil and its partners to recover 100 percent of the interest on its investments.

Several international organizations, such as the International Monetary Fund (IMF), have warned Guyana about the abuse that can take place when companies are allowed to recover 100 percent of the interest on its investments. In fact, the IMF cautioned in independent reports that Guyana should, as a protective measure, should cap the interest that is allowed for recovery.

In a 2018 report, the IMF said “the treatment of interest expenses in the Stabroek Block PSA is very generous, constituting an important source of possible revenue leakage.” In fact, the IMF said it examined several scenarios which illustrated how “excessive or abusive” oil companies can be in the use of loans to fund oil projects.

The IMF said it examined three scenarios, one of which looked at 75 percent to 100 percent of the development costs for the Liza One and Liza Two Projects in the Stabroek Block being funded by loans with a repayment period over 10 years with a 10 percent interest rate. The IMF said the revenue loss could be as high as US$2.6B. Such a practice, the organization said can have a “detrimental impact” on government revenue.

The financial institution was also keen to highlight the uniqueness of the Stabroek Block PSA, in that it allows the recovery of interest as an expense, irrespective of where the financing is sourced from. It therefore means that instead of using a bank or other traditional sources, ExxonMobil Corporation can provide its subsidiary (ExxonMobil Guyana Limited) in the Stabroek Block with loans, charge an interest, and recover same without worry.

While the Stabroek Block PSA states that the interest rates being used by Exxon ought to be “market rates”, the IMF warned that authorities ought not to be carried away as this is a vague term. Since it is not explicitly defined in the contract what is meant by “market rates”, the institution alluded that oil companies have the latitude to stretch this definition to suit its interest.

For almost seven years, Kaieteur News has challenged ExxonMobil Guyana Limited as well as the Guyana Government to inform the public of the interest rate Guyana is being made to pay on Exxon’s investments in the Stabroek Block. Both parties have refused to provide this newspaper and the nation by extension, with the facts.

To date, Exxon has five sanctioned projects in the Stabroek Block worth over US$40B. Exxon is allowed to charge uncapped and unknown interest rates on those investments.

Dutch, Investments, oil, Suriname, Total S.A

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Suriname does not allow oil companies to charge interest on investments

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